Mega Cap Discounted Sharply for a Week

 

Normally we eschew watching stock prices too closely.  After all, our penchant is analysis, not trading.  When we happened to catch a $40 per share price on Royal Dutch, a stock that normally trades closer to $60, we were stimulated to drop everything and get to work on a Buy recommendation.  As it turns out, $40 was gone by the end of the day leaving a closing price of $44.  A week later, the closing price is $50. 

 

Thus it paid to watch prices carefully.  Yet we do not remember ever seeing a discount in Royal Dutch stock being closed so quickly.  We remember a similar situation a few years ago in the same stock that unfolded over weeks and months.  The experience also reminds us of the time BP dropped sharply more than a decade ago.  While it was rewarding to commit to that company when it was temporarily out-of-favor, recovery was much slower than last week.

 

Nor could we be sure that RD stock would go up or that other Mega Caps would not go down instead.  We were confident that the value of RD compared to ExxonMobil (XOM) could not have changed as much as it did in a short period of time.  As it turned out, XOM held and RD went back up.

 

Was it the legendary Gus Levy of Goldman Sachs who said he would rather be lucky than smart?  It was smart to buy RD as a long-term investment.  It was lucky to see so much appreciation in such a large stock in one week.

 

Excerpt from October 1, 2001; Meter Reader: Dutch Treat